A perpetual challenge


The energy sector in Pakistan has long been plagued by uncontrolled circular debts and skyrocketing electricity prices, and it appears that these issues will continue to haunt the country for many years to come. The recent increase in the average power tariff for the financial year 2023-24, which burdens consumers with an additional cost of Rs3.281 billion, is only the latest manifestation of this ongoing challenge.
The decision to raise electricity rates has been framed as a fulfillment of the government’s commitment to the International Monetary Fund (IMF). However, it has ignited a political firestorm, particularly for the Pakistan Muslim League (N) led coalition government, which finds itself in hot water due to the backlash from the public and opposition parties over the power tariff hike.
Under the International Monetary Fund (IMF) program, the government is bound to increase power tariffs regularly to generate revenue and control the circular debt, though this will be detrimental to economic activities overall.
The implications of these skyrocketing electricity prices are manifold and significantly impact the lives of ordinary citizens and result in sharp upward pressure on the household energy bills. With an increase from Rs24.82 per unit to Rs29.78 per unit, the average national tariff has reached a new height, placing an unbearable burden on consumers. This not only affects households but also has severe consequences for businesses, industries and, above all, the economy.
One of the most critical issues facing the energy sector in Pakistan is the persistent problem of circular debts. These debts, which arise from the gap between the cost of producing electricity and the revenue collected from consumers, have reached alarming levels. They have been a chronic issue, hindering the sector’s ability to invest in infrastructure, maintenance, and capacity enhancement. Consequently, the power sector struggles to meet the increasing demand, resulting in frequent power outages and load shedding, which directly impact economic productivity and citizens’ quality of life.
The government’s reliance on tariff hikes as a solution to the energy crisis only exacerbates the problem. While increasing tariffs may provide temporary relief to the circular debt issue, it puts an unfair burden on the shoulders of already struggling consumers. The rising cost of electricity contributes to inflation, making essential commodities more expensive and further squeezing the budgets of ordinary Pakistanis.
To address these challenges, it is imperative for the government to adopt a comprehensive approach that goes beyond short-term fixes. Firstly, there is a need to improve governance and transparency in the energy sector. This includes tackling issues related to circular debts, reducing losses, improving revenue collection and enhancing efficiency in power generation, transmission and distribution.
The government must also explore alternative sources of energy and invest in renewable energy infrastructure. The country has significant potential for harnessing solar, wind and hydroelectric power, and tapping into these resources can help reduce reliance on costly imported fuels and diversify the energy mix.
To address these issues effectively, the government must adopt a holistic and long-term approach, focusing on improving governance, diversifying the energy mix, investing in infrastructure and prioritizing the interests of consumers. Only through concerted efforts and strategic planning can Pakistan hope to overcome its energy crisis and pave the way for a brighter and more sustainable future.